Bill Gross Buys A Pair Of Pimco CEFs, But No, Not Those Ones

By Brendan Conway

The fact that Bill Gross eats his own cooking is one reason many investors own Pimco closed-end funds despite their often hefty premiums. Disclosures show that, last week, as CEFs with rich premiums were selling off heavily, Gross bought shares of two Pimco offerings as their prices weakened.

But look at the premiums. By comparison to the lofty valuations of the funds covered in Barron’s, the two look downright earthly. PCN, with its 7.4% distribution, currently fetches 17% above its net asset value, according to CEFConnect. It has gone no higher than 30% over NAV in the the last year. PTY and its distribution yield of 7.6% are 18.5% above NAV. It, too, hasn’t travelled above a 30% premium.

The filing pages for two of the funds we cited for their dangerous premiums, the Pimco High Income Fund’s (PHK) and Pimco Global StocksPLUS & Income Fund (PGP), which are currently 55% and 51% above NAV even after the selloff, don’t show any fresh purchases by Gross as of this writing.

That could change, of course. Keep an eye on the subject here and here.

Add a Comment

We welcome thoughtful comments from readers. Please comply with our guidelines. Our blogs do not require the use of your real name.

Comment

There are 16 comments

OCTOBER 15, 2012 2:52 P.M.

Mike wrote:

Bill Gross bought 206,600 shares of PHK back in Dec 2010 at around $12.11 a share. Right about where it is trading at today..

OCTOBER 15, 2012 3:15 P.M.

Steve wrote:

Gross sold all of his PGP earlier this year.

OCTOBER 15, 2012 3:51 P.M.

Roger wrote:

Mr. Conway; You have too much time on your hands. Now move on. That has been public information for several days.

OCTOBER 15, 2012 5:09 P.M.

NYer1 wrote:

Mike
Gross could have done MUCH better buying almost any other HY closed end fund ..check out what FHY has done since december 2010 both on NAV basis and price basis vs. PHK..

OCTOBER 15, 2012 5:26 P.M.

Anonymous wrote:

More gossip from an unqualified financial reporter. Go to work for a tabloid you dipstick.

OCTOBER 15, 2012 11:10 P.M.

David wrote:

Thanks for your analysis. So you think PHK is over priced. What is your next target? How about Treasuries, TIPS or other "safe" investments. Is their price justified given the inflation in the economy? Maybe taking a loss to get a "return of principle" makes sense to you. Or how about ATT selling at a 50 P/E ratio? There are plenty of investments out there that can criticized in this economy.

As Will Rogers once said "any jackass can tear down a barn" . I just wonder how much you and your friends profited by your attack articles.

OCTOBER 16, 2012 11:03 A.M.

ASB wrote:

I was already aware of that and the fact that Bill Gross sold all of his PGP. Are you short PHK or something? I think we need a full disclosure here.

OCTOBER 16, 2012 11:06 A.M.

ASB wrote:

You know, most investors do their own research. You are not providing the investing public anything that hasn't be reported already.

OCTOBER 16, 2012 11:07 A.M.

Brendan Conway wrote:

I don't have any positions in these CEFs, long or short. If you think that what I write is not worth reading, well, you are free to not read it.

OCTOBER 16, 2012 11:15 A.M.

Luis Mayor wrote:

Mr. Conway, please stop it. You are not doing anybody a favor. Your constant attacks on PIMCO is a disgrace and your analysis is faulty. I bought PHK several years ago and the idea was to get the handsome yield. Who care if it is "overpiced"? A lot of things are so attack somebody else!!

Your analysis of the premium on these CEFs is flawed. Most (but not all) of the CEFs that PIMCO has, have an ARPS component that provides leverage to the shareholders of the CEF. These ARPS are currently paying rates of as low as 25 basis points per YEAR (yes, per year). The market price of the ARPS, for the holders of the ARPS, is about 70-80 cents on the dollar (why? because the ARPS is a piece of paper that pays 25 basis points a year, similar to a money market fund, but that cannot be redeemed for par...ever). I won't go into the long history of the ARPS (it's all in the PIMCO public filings), but given that the ARPS trade at a discount to "NAV", it is mathematically consistent that the equity of the CEF should trade at a premium. If your liability structure is 80% equity, 20% ARPS, and the ARPS trade for 75cents on the dollar, then a sum of the parts analysis results in the equity trading at a (100%-0.75x20%)/80%-1=6.25% premium. And this has nothing to do with the market's perception of the strength of the manager...it's just a reflection of the fact that the fund has cheap financing in its capital structure.

OCTOBER 16, 2012 1:43 P.M.

ASB wrote:

Brendon,
With all due respect, it's not that I think that what you write is not worth reading, I think it's not worth printing. Additionally it is having negative effects on these CEFs. I get the feeling you are publishing this just for the fun of watching these CEFs react. What's the deal? Everything you have published recently is old news. If you don't have anything new to add to the discussion, then just don't publish this old news that causes temporary negative reactions to these CEFs. What is the point of your "journalism"?

OCTOBER 16, 2012 1:49 P.M.

Brendan Conway wrote:

Why are you so certain that this particular blog post had an impact on the market? I suspect you have no evidence for that.

But let's assume you're right that it did. If people are selling after reading this one small blog post, then I have to assume they learned something that they did not previously know, or were confirmed in some point of view they already had. That would be true even if you, the presumably more informed investor, did know it.

If you can't concede that point, then your argument amounts to "Shut Up, Please."

OCTOBER 16, 2012 2:30 P.M.

Craig L. wrote:

Mr. Brendon;
You have caused enough carnage. Don’t you think it’s time to move on. Have you thought about another profession. People do not forget.

OCTOBER 16, 2012 4:00 P.M.

Anonymous wrote:

Dude,
Do you know how the internet works? "This one small blog post"???? Are you kidding? It's broadcast as one of the main headlines by Yahoo! Finance, one of the most highly accessed sources of financial news. Don't play" little innocent me", dude. You know what impact you are having, no matter how temporary. Who are you working for and why? Are you doing a "Cramer"??? Causing news that creates prices you want??? Fess up dude.

About Focus on Funds

As exchange-traded funds and other investing vehicles have ballooned in number, the task of figuring out what works well and what doesn’t has only gotten harder. Barrons.com’s Focus on Funds looks under the hood of ETFs, mutual funds and hedge funds for overlooked values, actionable ideas and the latest pitfalls for fund investors.